If you're like most small business owners, at some point you have robbed Peter to pay Paul. While this technique may buy you some time to generate additional income to cover past due bills, it does not offer any solid strategies to overcome and eliminate the debt that may threaten to permanently damage your company. According to the Small Business Administration (SBA), about 40,000 businesses shut down or file for bankruptcy every month. And while some of these closures are due to improper planning, many falter because they are deep in debt. "The ones that do fail, 99% of them fail because they have a cash restriction,†says John Bjeldanes, a counselor with SCORE, a resource partner of the SBA. "They simply allow their accounts receivable ledger to get too large and run out of cash to operate the business, they have far too much inventory (that they can't move), or they finance the business with accounts payable, lines of credit, or short-term debt like high interest credit cards of 18% to 20%. As a result, people are forever trying to categorize the bills according to who they're going to pay first, second, and third, rather than looking at the overall structure of the debt and the structure of the business.†Lathea V. Morris, co-founder of The Credit Alternative Group L.L.C., says paying business debts begins with having a good marketing and financial plan that includes a detailed budget. "Regardless of how passionate a business owner is about their business, they absolutely have to make sure that the numbers work,†Morris says. "You have to make sure that you generate enough income to pay your debts and hopefully enough for other business activities, such as marketing, that are going to help you to generate more income,†she says. To help entrepreneurs tackle their debt, SCORE and Corporate Turnaround, a debt restructuring firm, have created How to Pay Business Debts You Can't Afford, a 16-page workbook that gives business owners advice on how to settle commercial debts. "The easy-to-understand strategies in this guide have helped settle more than 25,000 business debts,†says Jerry Silberman, CEO of Corporate Turnaround and co-author of Small Business Survival Book: 12 Surefire Ways for Your Business to Survive and Thrive. "SCORE clients will learn how to explain their hardship directly to their creditors and gain the best possible settlements,†he says. The workbook, which is free and downloadable at www.score.org, instructs business owners to begin tackling their debt in these steps: 1. Restructure the debt: Debt restructuring is a process by which you negotiate new payment terms with your creditors. It includes expanding the time period that you are given to pay back creditors and/or reducing the amount you owe. First determine whether your company needs to incorporate such a process. If at least 30% of your payables are more than 90 days old, you can't pay current bills or past due bills, you're being sued, and collection agencies are ringing the phone off the hook, your business is a prime candidate. Then identify which creditors to restructure. Those that are most critical to your company's survival should be handled first. You can tackle debt restructuring on your own, especially if you can afford to pay your past due debts within three to six months, but if you need more than a year to make repayment, contact a professional debt restructuring firm for help. 2. Determine your monthly budget: You want to satisfy your debtors, but you also want to be realistic about how much you can afford, so project what you are capable of paying toward these debts on a monthly basis. The workbook includes a worksheet to help you calculate your revenue and expenses. But be conservative when making projections to allow for a cushion in the event of a cash flow crunch or economic downturn. You can use the payment plan template, also included in the workbook, to list your written offers of payment to creditors. 3. Prove your hardship: Many creditors are willing to work with you in paying back debts if you can establish a hardship. Prepare a letter that explains the circumstances under which you have been unable to meet your financial obligations. Perhaps there has been a serious illness or death in the family. Maybe a disaster such as a fire or flood has seriously threatened the life of your business, or the loss of a big customer or key employee has delivered a severe blow to profits. Whatever the reasons, detail them in your hardship letter on your company letterhead. Include financial information from your tax returns, balance sheet, profit and loss statement, or other documents that may help to support your situation. Just be prepared that a creditor may request to see these documents, so make sure they accurately verify what you have reported. 4. Wait for a response: Getting creditors to respond to your settlement offer takes time, so be patient. Creditors are unlikely to settle quickly or easily and each one will respond differently. Some may demand payment in full and immediately. Others may require that you submit financial documents to determine if your hardship letter is genuine. Don't let this time-consuming process frustrate you. Remember that the goal is to save your business.